Further Amendments to Who May Under

Following an amendment in December of last year to the requirements for licensing banks and certain non-banking financial companies (“NBFCs”) to undertake investment fund activities in Egypt, the Financial Regulatory Authority (“FRA”) was quick to issue a subsequent decision that amends yet again who may undertake these activities (the “Decision”).[1] In particular, the new Decision allows asset management companies and investment management ones to undertake investment fund activities, in which case the fund certificate holders associations of these companies assume the tasks assigned otherwise to the general assembly of investment funds. The Decision also removes a previous stipulation that licensed NBFCs may collaborate in the undertaking of these activities with non-FRA supervised private corporations that have investment as one of their objectives.

Background

In June 2018, FRA issued decision No. 58 of 2018,[2] setting out the procedures and requirements for licensing banks and certain NBFCs to undertake investment fund activities, whether on their own or in collaboration with other entities. As per the decision, banks may undertake fund activities on their own as stated in the Capital Market Law after obtaining a license from FRA and the Central Bank of Egypt’s approval. As for FRA-supervised NBFCs, they may request a license to undertake such activities provided this applies only to insurance companies, reinsurance companies, investment banks, and microfinance companies, and that they undertake such activities on their own or in collaboration with other entities. These entities were specified as: (1) foreign financial institutions and companies, (2) public juristic personalities with investment as one of their objectives, (3) pension funds and private insurance funds, (4) the post authority, (5) financial leasing companies, (6) mortgage finance companies, and (7) factoring companies. Then, on 10 December 2019, FRA Decision No. 160 of 2019 was published, replacing the second entity – that of “public juristic personalities with investment as one of their objectives” – with a different one, that of “public and private juristic personalities with investment as one of their objectives, provided that private juristic personalities are not one of the entities subject to FRA’s supervision.” In theory, this would have allowed insurance companies, reinsurance companies, investment banks, and microfinance companies to undertake investment fund activities on their own or with any of the entities referred to above including private companies not subject to FRA’s supervision (i.e., ordinary companies that have investment as one of their objectives, such as investment companies not subject to FRA’s supervision).

The New Decision

The new Decision removes the previous provision of non-FRA supervised companies as collaborators of NBFCs on investment fund activities while also simultaneously expanding the circle of NBFCs that may undertake these activities. In effect, this means that upon obtaining the necessary FRA license, the following NBFCs may undertake investment fund activities on their own or in collaboration with other entities: insurance and reinsurance companies; investment banks; asset management companies; investment management companies; and microfinance companies. As for the collaborating entities, these remain identical to the seven listed above, except for the second one which is now “public and private juristic personalities with investment as one of their objectives.” In other words, the provision that private juristic personalities are not FRA supervised has been removed. With regards to asset management and investment management companies licensed to undertake investment fund activities alone or in collaboration with other entities as previously mentioned, the Decision specifies that the fund certificate holders associations in these companies are tasked with the responsibilities of the general assembly of investment funds.   [1] FRA Board of Directors Decision No. 171/2019 amending its Decision No. 58/2018 on the new rules and regulations for banks and certain financial companies to undertake investment fund activities alone or jointly with others, Egyptian Gazette, Issue No. 16, 20 January 2020. [2] FRA Board of Directors Decision No. 58/2018 on the new rules and regulations for banks and certain financial companies to undertake investment fund activities alone or jointly with others, Egyptian Gazette, Issue No. 134, 11 June 2018.